Ella 
Turkey’s significant increase in interest rates has garnered the attention of foreign investors who have long been skeptical about the country’s policies. The recent rate hike has sparked discussions about the possibility of foreign investors returning to Turkish assets if authorities continue to demonstrate a commitment to orthodox monetary policies.
Following the central bank’s unexpected move to raise its key rate by 750 basis points to 25%, the Turkish lira saw a rally of up to 7% on Thursday. This bold step indicated a newfound independence among policymakers who are aiming to address ongoing pressures on the currency and control inflation expectations.
Top officials in Turkey have outlined plans to take additional steps to attract foreign investment. They intend to publish a comprehensive economic program next month to reduce uncertainties, and they also plan to initiate meetings with foreign investors. The investor roadshow will begin on September 19 with Finance Minister Mehmet Simsek leading the way at Goldman Sachs headquarters in New York.
Foreign investors had largely withdrawn from Turkey over the past few years due to unconventional policies, including interest rate cuts despite rising inflation. However, this recent rate hike has signaled a change in approach and a commitment to addressing economic challenges.
Some investors have expressed cautious optimism about Turkey’s evolving stance. They acknowledge the need for more evidence of a return to orthodox policies but are considering reevaluating their investments in the country.
While the rate hike has inspired confidence, uncertainties remain. Questions linger about the government’s commitment to these policy changes and whether President Tayyip Erdogan supports them. Analysts speculate on whether further rate increases will be necessary and whether Erdogan will approve them.
The central bank’s statement indicates a willingness to raise rates as needed, with predictions from JPMorgan forecasting rates to reach 35% by the end of the year. The rate hikes aim to address high inflation and stabilize the economy.
Although Turkey’s bonds have seen decreased foreign investment, its stock market and Eurobonds are considered more attractive targets this year, especially in the wake of the rate hike. Authorities have also taken measures to control the budget deficit, reduce domestic demand, and bolster FX reserves, all of which contribute to improving the country’s economic outlook.
In the face of challenges and changes, Turkey hopes to attract foreign investors by demonstrating a commitment to rules-based policies aligned with global norms, as articulated by Finance Minister Simsek.
